If you’re a homeowner aged 62 or older and looking for ways to boost your income in retirement, a reverse mortgage might sound like a smart solution. It offers a way to tap into your home’s equity without selling or taking on a monthly mortgage payment. But reverse mortgages can be confusing—and potentially risky—if you don’t understand how they work.
Done right, a reverse mortgage can give you financial breathing room in retirement. Done wrong, it can put your home at risk. Here’s what you need to know before deciding whether it’s the right move for you.
What Is a Reverse Mortgage?
A reverse mortgage is a special type of loan for homeowners 62 and older that allows you to convert part of the equity in your home into cash. Unlike a traditional mortgage, where you make monthly payments to a lender, a reverse mortgage pays you. You can receive the money as a lump sum, in monthly payments, or as a line of credit you draw from as needed.
The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). This makes it more regulated and often safer than other financial products aimed at retirees.
You continue to own your home, and you won’t have to repay the loan until you move out, sell the house, or pass away. At that point, the proceeds from selling the home typically go toward paying off the loan. Any leftover equity goes to you or your heirs.
Who Benefits Most from a Reverse Mortgage?
Reverse mortgages are most helpful for older homeowners who:
Have significant equity in their home
Plan to stay in their home for the rest of their lives
Need extra income to cover expenses, healthcare, or home repairs
Don’t have other large savings or retirement accounts to draw from
This type of loan can provide a stable income stream, especially for retirees living on Social Security or limited pensions. It’s also useful for people who are “house rich but cash poor”—meaning their home has value, but their monthly income is tight.
If your home is paid off—or nearly paid off—and you want to age in place comfortably, a reverse mortgage could give you the financial cushion you need without requiring you to move or downsize.
How the Money Is Delivered
One of the best features of a reverse mortgage is flexibility. You can choose how to receive the funds:
Lump sum: Get all your money upfront. Best for paying off an existing mortgage or major expense.
Monthly payments: Choose a fixed monthly payout for a set period or for as long as you live in the home.
Line of credit: Access funds when you need them, with no interest charged until you draw from it.
Combination: Mix and match lump sum, monthly payouts, and line of credit to fit your needs.
The money you receive from a reverse mortgage is tax-free, since it’s considered a loan advance, not income. This can be especially helpful for retirees trying to stay under income-based thresholds for Medicaid or other benefits.
Important Rules and Requirements
To qualify for a reverse mortgage, you must be at least 62 years old, own your home outright or have a low mortgage balance, and live in the home as your primary residence. You also need to be financially stable enough to keep up with property taxes, homeowners insurance, and home maintenance.
As part of the process, you’re required to complete counseling with a HUD-approved advisor. This is a good thing—it helps ensure you fully understand the loan, including fees, interest rates, and how repayment works.
Your home must also meet certain standards. Manufactured homes, condos, and co-ops may have additional restrictions, and not all properties are eligible. Most lenders will order an appraisal to determine your home’s value before issuing the loan.
The Risks and Trade-Offs
While a reverse mortgage can offer big benefits, it’s not without drawbacks. The most obvious is that your home equity decreases over time. Because you’re borrowing against your home and not making payments, the loan balance grows, and your ownership stake shrinks.
That could mean less inheritance for your heirs, or complications if you need to sell or move into assisted living. The loan must be repaid when you move out, sell the home, or pass away—and if the loan balance exceeds the home’s value, FHA insurance covers the difference (so your family won’t owe more than the home is worth), but it still means no remaining equity.
Another thing to consider is that while you don’t have to make monthly payments, you’re still responsible for property taxes, insurance, and basic upkeep. If you fall behind on those, you could default on the loan—even if you haven’t drawn much from it.
And because fees and interest are rolled into the loan balance, reverse mortgages tend to be more expensive than traditional home equity loans or lines of credit. That makes them a better fit for long-term solutions rather than short-term cash needs.
Alternatives to Consider
If you’re hesitant about a reverse mortgage, there are other ways to access the equity in your home. A home equity loan or line of credit (HELOC) may offer lower fees and more flexibility—but you’ll have to make monthly payments. That may not be realistic for retirees with fixed incomes.
You could also consider downsizing to a smaller home or moving to a lower-cost area to free up equity while reducing your expenses. This option may be more practical for people with limited mobility or those who no longer need a large home.
Some people also explore shared appreciation agreements, where an investor gives you cash now in exchange for a share of your home’s future value. These programs are newer and still evolving, but may be an option in specific markets.
Ultimately, the right choice depends on your goals, your health, and how important it is for you to stay in your current home.
Getting Started Safely
If you’re seriously considering a reverse mortgage, start by learning more from trusted sources. Visit the HUD Reverse Mortgage page for official information on eligibility and counseling. Then, reach out to a lender approved by the FHA to discuss your options and get a personalized estimate.
Always include your family in the discussion if inheritance or shared ownership is a concern. And avoid “reverse mortgage specialists” who pressure you to act fast or tie the loan to risky investments—that’s a red flag.
You can also use a reverse mortgage calculator from reputable sources like AARP or Consumer Financial Protection Bureau to get a rough idea of how much you could borrow.
Final Thoughts: Comfort and Caution Can Go Together
A reverse mortgage isn’t for everyone—but for the right homeowner, it can provide financial relief, independence, and peace of mind. If you’re trying to make ends meet in retirement, this tool could help you stay in your home and stretch your resources further.
The key is making sure you understand the full picture—how the loan works, what it costs, and what it means for your future. With the right research, a good counselor, and a clear plan, a reverse mortgage can be a safe and effective way to turn your home into a retirement asset—not just a place to live, but a way to live better.
Sources
HUD – Reverse Mortgage Info
AARP – Reverse Mortgage Calculator
Consumer Financial Protection Bureau – Reverse Mortgages
National Council on Aging
Investopedia – Reverse Mortgage Guide
